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Personal Pensions

By: EconomyWatch Date: 21 September 2009

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Personal pensions, also known as private pensions, are provided by pension and other financial services companies. They intend to give an individual a second pension, in addition to his/her employment pension, to enable him/her to have a financially secure life post retirement. In case a person cannot afford a personal pension, s/he can opt for an occupational pension. Occupational pension is a personal pension scheme run by some employers and is also known as works pension, company pension or superannuation.

Personal pensions largely depend on the amount one can afford to save for his/her pension and the returns from other pension schemes. Personal pensions may be suitable for:

· People who are self employed

· Unemployed people who can afford to pay for a pension

· People whose employers do not have a pension scheme

· People with moderate income who wish to save money for post-retirement life

Types of Personal pensions

There are two types of personal pensions:

· Insured personal pensions: An insured personal pension is one where a fund manager makes all investment decisions on the individual’s behalf. The fund manager is always authorized by a regulatory service body. Here, a life insurance company manages one’s assets and liabilities. This type of pension also includes privately managed funds.

· Self invested personal pensions (SIPP): SIPPs allow one to select any pension fund for himself/herself. The investment may be single or multiple or a combination of both. SIPP investments commonly include hedge funds, commercial property, equities and securities. SIPPs offer people tax-free income.

Advantages of personal pensions

Depending on the plan one chooses, there are many advantages of a personal pension scheme:

· Flexible payment options

· Wide choice of investment assets

· Tax relief on investments made

· Tax free sum assured after retirement

· Can be taken any time between the ages of 50 and 75, and one gets to choose the age.

Possible personal pension alternatives

There are other savings and investment options one can use for retirement instead of personal pensions. However, the tradeoffs are returns and financial security. One can opt for:

· Individual Savings Account (ISA)

· Endowment policies

· Property investment

It is always prudent to ensure that life after retirement is financially secure. Personal pensions can help one take control of life after work and be assured of solvent first class services.